According to Bank of America-Merrill Lynch, the domestic scenario in Australia has not deteriorated enough that further easing be required, and hence predict the RBA to keep rates on hold in the upcoming meeting.
Key Quotes
“Decline in oil prices and the Australian dollar give us confidence that a solid, but still below trend, level of overall activity can be maintained over the course of 2015. This is despite the decline in commodity export prices and the significant downtrend in resources sector investment that will continue.”
“Therefore, at worst we expect the RBA will leave its GDP forecast unchanged in the upcoming February Statement on Monetary Policy.”
“On inflation, data printed stronger than expected on the all-important ‘core’ measure in the December quarter. This again must reduce the probability of a short-term rate cut.”
“Over the coming quarters the direct impact of the decline in petrol prices will be looked through by the RBA from a policy perspective. We expect that indirect effects will be broadly offset by the ongoing exchange rate pass-through due to the now significant deprecation of the A$ over the past year. This should leave the ‘core’ measure of inflation in the bottom half of the RBA’s target band over the entire year.”
“In November, the SoMP assumed an oil price of US$86/bbl. Given it has subsequently declined to below US$50/bbl, we can expect the RBA to revise lower its headline inflation forecasts by at least a ¼% in the year to June and most likely December as well, if not more.”
“But, as with our own forecasts, this will be somewhat offset by the potential for greater pass through of the lower A$, especially later in the year. Here the RBA assumed US$0.86 back in November, but the exchange rate has now moved to below US$0.80.”
“Based on what has transpired domestically since the December board meeting, we do not believe that the outlook has deteriorated materially enough to warrant the further easing of policy.”
Key Quotes
“Decline in oil prices and the Australian dollar give us confidence that a solid, but still below trend, level of overall activity can be maintained over the course of 2015. This is despite the decline in commodity export prices and the significant downtrend in resources sector investment that will continue.”
“Therefore, at worst we expect the RBA will leave its GDP forecast unchanged in the upcoming February Statement on Monetary Policy.”
“On inflation, data printed stronger than expected on the all-important ‘core’ measure in the December quarter. This again must reduce the probability of a short-term rate cut.”
“Over the coming quarters the direct impact of the decline in petrol prices will be looked through by the RBA from a policy perspective. We expect that indirect effects will be broadly offset by the ongoing exchange rate pass-through due to the now significant deprecation of the A$ over the past year. This should leave the ‘core’ measure of inflation in the bottom half of the RBA’s target band over the entire year.”
“In November, the SoMP assumed an oil price of US$86/bbl. Given it has subsequently declined to below US$50/bbl, we can expect the RBA to revise lower its headline inflation forecasts by at least a ¼% in the year to June and most likely December as well, if not more.”
“But, as with our own forecasts, this will be somewhat offset by the potential for greater pass through of the lower A$, especially later in the year. Here the RBA assumed US$0.86 back in November, but the exchange rate has now moved to below US$0.80.”
“Based on what has transpired domestically since the December board meeting, we do not believe that the outlook has deteriorated materially enough to warrant the further easing of policy.”
